Capital growth and rental yield continue to soar in the Top End. Is Darwin too hot for new investors?
If you thought the residential-property market in Darwin couldn’t possibly grow any bigger, think again. In the month to December 2009 alone, housing prices climbed another 1.61% to a median of $505,500, according to Residex. Unit values jumped 2.19% to $393,000.

“Darwin is a vibrant and buoyant market that doesn’t show any signs of slowing in the near future,” says Quentin Kilian, CEO of the Real Estate Institute of Northern Territory.

Adds John Lindeman, head of research at Residex: “If conditions in Darwin remain the same as they are today, the market will continue to grow. Can house prices exceed $600,000? Of course they can.”

This is good news for investors who already own property in Darwin. New buyers, however, may want to weigh their options carefully before purchasing there, Lindeman says.

“The rental return in Darwin is still excellent, but it now requires an investment that may be beyond many investors’ reach,” Lindeman explains. “Ideally, you want to buy at the beginning of a growth period, not four or five years into it.”

Louis Christopher, managing director of SQM Research, has an even stronger message for investors. He suggests they avoid buying into what he describes as an “over-heated” market – at least until there has been a “healthy correction” of prices.

“Darwin is at significant risk of a property correction similar to the one experienced in Perth between 2007 and 2009,” Christopher says. “The rises over the past 12 months have, in our opinion, only been driven by speculation, without any resounding increases in wages or population.”

For those still keen to invest in Darwin, the best returns could be realised on properties that appeal to low- or middle-incomes earners, says Kilian.

According to the Australian Bureau of Statistics, the median age of people living in the Northern Territory is 31.2 years – the youngest of any state or territory. “These are people who can’t necessarily afford to buy or rent at the top end of the market,” Kilian says. “In fact, we currently have a slight over-supply of executive apartments in Darwin.”

The Northern Territory Government is reportedly considering a not-for-profit corporation to build more community housing for low-income earners. “This is a fantastic idea, but realistically, it won’t end our chronic housing shortage,” Kilian says. “Demand will still be strong for affordable rental properties, as, in all likelihood, such a development will be aimed only at filling the Government’s needs in public housing.”

Watch foreign policyLindeman notes that much of Darwin’s residential-property growth in the past five years is due to its status as a primary embarkation and supply post for Australian troops. This has inflated the city’s population, as well as the demand for housing.
“For every soldier sent to East Timor, Iraq or Afghanistan, there are ten support personnel on the ground in Darwin,” Lindeman says.

With this in mind, Lindeman urges investors to keep as close an eye on foreign policy as they do on property prices and interest rates. “If Australia were to pull out of these regions, Darwin’s property-market boom would end pretty quickly,” he says.
Lindeman does concede, though, that a withdrawal of troops “is unlikely to happen overnight, and in any case, there’s nothing to suggest this is imminent.”

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